LawFlash

Highest Patent Court Narrows Scope of Covered Business Review

February 28, 2017

A patent does not qualify for “covered business method” review if its claims are only incidental to a financial activity.

The US Court of Appeals for the Federal Circuit (CAFC) recently decided that a claimed method (in this case authenticating formatted data in a web page) is not a Covered Business Method (CBM) for review purposes under the America Invents Act (AIA) if the method is only incidental to a financial activity. Secure Axcess LLC v. PNC Bank Nat’l Ass’n, CAFC case number 16-1353.

CBM reviews are adversarial administrative proceedings before the US Patent Trial and Appeal Board (Board) allowing accused infringers to challenge the validity of an allegedly infringed patent on any patentability ground, so long as the patent is a CBM patent, i.e., “a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service.” AIA §§ 18(a)(1)(E), 18(d)(1).

The ’191 Patent

1. A method comprising:
transforming, at an authentication host computer, received data by inserting an authenticity key to create formatted data; and
returning, from the authentication host computer, the formatted data to enable the authenticity key to be retrieved from the formatted data and to locate a preferences file, wherein an authenticity stamp is retrieved from the preferences file.

As the court notes, the ’191 patent is in the general area of computer security, and, in particular, relates to webpage authentication. While the patent describes that the methods at issue can be used for activities that are financial in nature (e.g.,as applicable to a bank website), the patent does not limit application of the methods to only financial activities.

Patent Trial and Appeal Board Proceedings

At the institution of the CBM, the Board determined that the ’191 patent qualified as a CBM patent[1] and provided its reasoning in the consolidated final written decision. The Board argued, inter alia, that the ’191 patent relates to providing websites to bank customers and, therefore, the methods of the ’191 patent are used in the administration of a financial product or service. The Board relied in part on the legislative history of the AIA, noting for example that one legislator was of the opinion that website functionality is an ancillary activity falling under the statutory “practice, administration and management of a financial product or service” language. The Board determined that the ’191 patent was not for a technological invention, which would have otherwise qualified the ’191 patent for the exception to the CBM statutory definition. The Board determined that the ’191 patent claims would have been obvious over the cited prior art and were therefore unpatentable.

Court of Appeals for the Federal Circuit Decision

Since the US Patent and Trademark Office is an administrative agency, the CAFC reviewed the Board’s determination under the Administrative Procedure Act (APA), which gives the reviewing court the power to “hold unlawful and set aside agency action, findings, and conclusions found to be . . . arbitrary [or] capricious, an abuse of discretion, or otherwise not in accordance with law . . . [or] in excess of statutory jurisdiction, authority, or limitations, or short of statutory right.” 5 U.S.C. § 706(2).

The CAFC disagreed with both parties as to the applicable standard of review. In the court’s view, the issue was not whether the Board’s decision was arbitrary or capricious, i.e., whether the ’191 patent is, or is not, a CBM patent. Rather, the court stated, the issue was whether the Board properly understood the scope of the statute, i.e., whether it acted “not in accordance with law, and in excess of statutory jurisdiction [and] authority, and short of statutory right.”

In stark contrast to the Board’s reasoning, the CAFC stated that “Congress did not leave the decision of what qualifies as a CBM patent to chance.” Secure Axcess LLC, CAFC case number 16-1353 (citing Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54 (1992) (“in interpreting a statute . . . courts must presume that a legislature says in a statute what it means and means what it says”)). First, the court found that the statutory language “a patent that claims” refers plainly to the claims of the patent. While the court agrees that the written description of the patent can properly be invoked in constructing the claims, the court cautions that the written description cannot be used to fill the gaps for what may be missing in the patent claims.

The court then found that the ’191 patent’s claims simply do not cover a financial product or service. The court took particular aim at the Board’s determination that the methods claimed by the ‘191 patent are incidental to a financial activity. Consistent with its previous decision in Unwired Planet,[2] the court held that “incidental to a financial activity” is not part of the statutory definition of a CBM patent, and that such a definition is beyond the scope of the statutory standard. Notably, the court distinguished its holding in Blue Calypso,[3] where it agreed with the Board’s determination that the claimed methods at issue were “financial in nature,” and therefore properly reviewed under the CBM, because the financial in nature determination did not broaden the statutory definition of a CBM patent.

In a dissenting opinion, Circuit Judge Alan D. Lourie stated that the ‘191 patent claims fall under the statutory language of a “method or apparatus for performing data processing”; that, overall, the ’191 patent invention clearly aims at being used in the management of a financial service; and that Secure Axcess has primarily alleged infringement against banks. While Judge Lourie agreed that the Board used overly broad language in describing the ’191 patent claims as incidental to a financial activity, he argued that the Board nevertheless correctly concluded that the methods claimed by the ’191 patent perform operations were used in the practice, administration, or management of a financial product or service.

We will continue to closely follow and report to our clients any Board and CAFC proceedings relating to CBM reviews, as their resolution may affect the ability to challenge allegedly infringed patents. It is also important to note that the CBM review program for new CBM petitions is set to expire on September 16, 2020.[4]

Contacts

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